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Credit Cards

Timeline: The History of the Credit Card

Merchants start extending credit to favored customers while oil companies provide “courtesy” cards to automobile owners to pay for gas at company-owned gas stations. Customers were billed at the end of every month and had to pay the total amount to retain usage rights.1

Early1920s

Year1928

The Charga-Plate was developed. Large scale merchants would begin to issue these to customers to use as a store credit card.2

A Brooklyn banker, John Biggins, partners with local merchants to launch a “Charg-It” card and offers it exclusively to banking customers. Bills had to be settled every month.3

Year1946

Year1950

The Diner’s Club® card is introduced as a charge card for travel and entertainment expenses. Within one year, 42,000 consumers become cardholders.4

Bank of America launches the “BankAmericard” as the first revolving credit product issued by a third-party bank that charges a nominal fee to consumers to carry a balance over from month-to-month.5

Year1958

Year1959

The American Express® Card, which debuted a year earlier, is the first to switch from paper to plastic, and gain international acceptance. 6 By the end of 1962, there are over 900,000 cardholders.7

A group of California banks form the Interbank Card Association (ICA). They launch the second major bank-issued card, Mastercard.8

Year1966

Year1971

First Data is founded in Omaha, Neb., providing processing services to the Mid-America Bankcard Association (MABA).10

International partnerships and licensing agreements spur the decision to change the BankAmericard name to Visa.9

Year1976

Year1976

First Data becomes the first processor of Visa and Mastercard bank-issued credit cards.11

American Express buys 80 percent of First Data Resources (the remaining 20 percent was purchased in five percent increments each subsequent year until June 1983).12

Year1980

Year2014

Apple® launches Apple Pay™.13

EMV® liability shift goes into effect in the United States, meaning merchants not accepting chip cards could now be held responsible for fraudulent in-person credit transactions. Previously, card issuers were liable.14

Year2015

Today

75.7%, of U.S. consumers own at least one credit card and the numbers are increasing, with 10 million new consumer cards issued in 2016.15

Credit Card Design

Initially, credit cards featured cardholder name, account number, and card expiration date along with logos of the issuing bank and card network. Over the years, additional features have been added to improve the transaction process and help combat fraud.

1969Magnetic Strip Embedded with cardholder information, it enabled merchants to swipe the card and increase the speed of the transaction.16

1997CVV Code (Card verification value) A 3- or 4-digit code, it was added to the back of cards (or front of American Express) to combat Card-Not-Present (CNP) fraud resulting from the growing popularity of online shopping.17

2004 EMV Chip As fraudsters found avenues to steal payment data and create counterfeit cards, Europay®, Visa and Mastercard joined forces to introduce the EMV chip as an additional security feature. Today, almost every credit and debit card in America is embedded with an EMV chip.18 (Learn more about EMV.)

The Mechanics of Accepting Card Payments

The Credit Transaction Process: How It Works

Step 1

Cardholder swipes or inserts their credit card into a payment terminal to transfer their information into the merchant’s POS system in-store. For eCommerce payments, the cardholder either enters it manually at checkout or confirms a stored payment option.

Step 2

The card information is sent electronically to the merchant’s acquiring bank or payments processor (such as First Data), which routes the transaction to the right card network (Visa, Mastercard, Discover or American Express). eCommerce payments also require a “gateway” provider whose role is to connect the merchant’s website to the acquirer.

Step 3

The network forwards the transaction to the issuing bank. They confirm the card’s validity (to ensure it hasn’t been reported lost or stolen) and confirm the cardholder has available credit.

Step 4

If the transaction is approved, the issuing bank generates an authorization number and routes it back to the card network, signifying they are willing to fund the purchase on behalf of the cardholder.

Step 5

The card network then forwards the authorization number back to the acquiring bank or payments processor, which forwards the number to the merchant, who finalizes the transaction with the customer.